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FOURTH
SECTION
CASE OF
BIMER S.A. v. MOLDOVA
(Application
no. 15084/03)
JUDGMENT
STRASBOURG
10 July 2007
This
judgment will become final in the circumstances set out in Article 44
§ 2 of the Convention. It may be subject to editorial
revision.
In the case of Bimer S.A. v. Moldova,
The
European Court of Human Rights (Fourth Section), sitting as a Chamber
composed of:
Sir Nicolas Bratza, President,
Mr J.
Casadevall,
Mr G. Bonello,
Mr K. Traja,
Mr S.
Pavlovschi,
Ms L. Mijović,
Mr J. Šikuta,
judges,
and Mr T.L. Early, Section Registrar,
Having
deliberated in private on 25 May and 19 June 2007,
Delivers
the following judgment, which was adopted on the last mentioned
date:
PROCEDURE
- The
case originated in an application (no. 15084/03) against the Republic
of Moldova lodged with the Court under Article 34 of the Convention
for the Protection of Human Rights and Fundamental Freedoms (“the
Convention”) by Bimer S.A. (“the applicant”), a
company incorporated in the Republic of Moldova, on 7 March 2003.
- The
applicant was represented by Mr R. Zeglovs, a lawyer practising in
Riga, Latvia. The Moldovan Government (“the Government”)
were represented by their Agent, Mr V. Pârlog.
- The
applicant alleged, in particular, that the closure of its duty free
shop and bar constituted a breach of its rights under Article 1 of
Protocol No. 1 to the Convention.
- The
application was allocated to the Fourth Section of the Court (Rule 52
§ 1 of the Rules of Court). Within that Section, the
Chamber that would consider the case (Article 27 § 1 of the
Convention) was constituted as provided in Rule 26 § 1.
- By
a decision of 23 May 2006, the Court declared the application
admissible.
- The
applicant and the Government each filed further written observations
(Rule 59 § 1), the Chamber having decided, after consulting the
parties, that no hearing on the merits was required (Rule 59 § 3
in fine).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
- The
applicant, Bimer S.A., is a company incorporated in the Republic of
Moldova. From the moment of incorporation its shares were owned by
Moldovan, American and Bahamian investors, it therefore qualified as
a company owned by foreign investors and thus benefited from special
incentives and guarantees under the Law on Foreign Investments (see
paragraph 24 below).
1. Background to the case
- On
10 June 1994 Presidential Decree No. 195 (“the Decree”)
was promulgated. It made possible the creation and operation of duty
free shops at land, water and air-border crossings. According to the
Decree, the duty free shops were entitled to sell imported goods
without having to pay customs tax (see paragraph 23 below).
- On
12 June 1997 the applicant company signed a contract with the Leuşeni
Customs Office, at the border between Moldova and Romania, providing
for the opening of duty free shops on the territory of the customs
zone. The contract did not contain any provisions as to its duration.
It was approved by the Head of the Customs Department of the
Government and by the Minister of National Security.
- On
3 July 1998 and on 2 December 1998 the company obtained two
licences to operate a duty free shop and a duty free bar, within the
shop, at the Leuşeni Customs Office. The licences were issued in
accordance with the Decree and they did not contain any provisions as
to their duration. Subsequently, the applicant company bought the
necessary equipment, built the premises of the shop and bar and
started operating them.
2. The change of legislation
- On
24 April 2002 the Moldovan Parliament made an amendment to the
Customs Code by which duty free sales outlets were thenceforward
restricted to international airports and on board aircraft flying
international routes (see paragraph 25 below).
- On
18 May 2002 the Customs Department ordered the closure of all duty
free outlets which were not located in international airports or on
board aircraft flying international routes (“the order”).
2. The applicant's court action against the order
- On
12 June 2002 the applicant company, together with other companies
similarly affected, lodged a court action against the order with the
Court of Appeal of the Republic of Moldova.
- The
applicant argued inter alia that the grounds relied on by the
Customs Department in closing down its duty free shop and bar were
not enumerated in the exhaustive list of grounds for closing down
such shops provided for in section 56 of the Customs Code.
- Moreover,
in the light of section 46 of Law No. 780 (see paragraph 26
below), the new amendments to the Customs Code could not have
retroactive effect and could be interpreted only as limiting the
opening of duty free shops in the future, and not as closing down
those already open.
- According
to the applicant, the order conflicted with section 40 of the Law on
Foreign Investments (see paragraph 24 below), which stipulated that
the activity of a company owned by foreign investors could be
terminated only by a governmental decision or a court order, and only
when the company had seriously breached Moldovan legislation and its
articles of incorporation.
- The
applicant further argued that according to section 43 of the Law on
Foreign Investments (see paragraph 24 below), in the event of the
adoption of new, less favourable legislation, companies owned by
foreign investors were entitled to rely on the old legislation for a
period of ten years. The ten-year period began to run from the date
of enactment of the new legislation. Moreover, the second paragraph
of the same section specifically provided that foreign-owned
companies which enjoyed customs incentives in accordance with the
former legislation of the Republic of Moldova had the right to enjoy
those incentives after new legislation came into effect.
3. The judgment of the Court of Appeal of the Republic
of Moldova
- On 26 June 2002 the Court of Appeal of the Republic of
Moldova ruled in favour of the applicant company and quashed the
order, relying inter alia on the following reasons:
“...The court considers that the order of the
Customs Department No. 127 of 18 May 2002, issued for the purpose of
applying Law No. 1022 of 25 April 2002 [concerning the modification
of the Customs Code], by which the activity of duty free shops was
terminated starting with 18 May 2002... is illegal because it is
contrary to the legislation in force.
Law No. 1022 of 25 April 2002, by which Article 51 of
the Customs Code was modified ... does not provide for the
termination of the activity of the duty free shops already open in
places other than airports and on board aeroplanes.
Moreover, the above mentioned Order [of the Customs
Department] runs contrary to Article 56 of the Customs Code which
does not provide among the reasons for liquidating a duty free shop
the reason provided for in the Order – a change in the
legislation.
The Court considers that the modified text of Article 51
of the Customs Code cannot have a bearing on the duty free shops
already open and in operation, because this would also run contrary
to Article 46 (1) of the Law on the Normative Acts, which stipulates
that a law cannot be retroactive or ultra active.
Since the applicants are enterprises with foreign
investments, the Court considers that the Order runs contrary to
Article 39 (1) of the Law on Foreign Investments, which provides that
the foreign investments are guaranteed full security and protection
in the Republic of Moldova.
Moreover, according to Article 40 of the Law on Foreign
Investment, the applicants' activity ...can be terminated only by
means of a Government Decision or a court judgment and only if they
have seriously breached the legislation or their statute of
incorporation. However, the Order in question does not contain any
reference to any breaches committed by the applicant and is not based
on a Government Decision or a court judgment.
It is necessary to indicate that in accordance with
Article 43 (1) of the Law on Foreign Investment, in case of enactment
of new laws which change the conditions of a company with foreign
investment created before the enactment of such laws, the company in
question has the right to guide itself by the old legislation for a
period of 10 years calculated from the date of enactment of the new
legislation.
According to the second paragraph of section 43 of the
Law on Foreign Investments, foreign investors and enterprises with
foreign capital which enjoyed customs, tax and other incentives in
accordance with the legislation of the Republic of Moldova formerly
in force, have the right to enjoy these incentives after the new
legislation comes into effect.
...
The court considers that the Order violated the
applicants' right to property guaranteed by Article 46 of the
Constitution, Sections 1, 40 and 41 of the Law on Property and by
Article 1 of Protocol No. 1 to the Convention.”
- The
Customs Department appealed against this judgment to the Supreme
Court of Justice.
4. The judgment of the Supreme Court of Justice
- On 11 September 2002 the Supreme Court of Justice
allowed the Customs Department's appeal, quashed the judgment of the
Court of Appeal and dismissed the applicant's action. The grounds
relied on by the Supreme Court were as follows:
“The first instance court, in finding for the
applicants, reached conclusions which are based on a wrong
interpretation of the law because the Order in question does not
provide for a total termination of the activity of duty free shops
but only for the termination of their activity in certain places.
Therefore the first instance court's conclusion that the
Order had as effect the termination of the entire activity of the
foreign investors who had opened these shops and that thus their
right to total security and protection provided for by Article 31 of
the Law on Foreign Investment was violated is incorrect.
Article 51 of the Customs Code, as modified by Law No.
1022 of 25 April 2002, defines the duty free as a customs regime
which consists of sale of goods under customs supervision in
especially dedicated places in international airports and onboard
aeroplanes.
Accordingly, through this provision the legislators
regulate and limit the places in which such shops can be located but
they do not create any interdiction in so far as their activity is
concerned. Therefore the arguments of the first instance court that
the right to activity of the foreign investors has been violated, is
devoid of legal support. The applicants are not prohibited to place
their shops in the places provided for by law, i.e. in airports and
onboard aeroplanes.
...
According to the documents of incorporation of these
companies, they practice different kinds of activities, including the
sale of goods in the Duty Free regime.
The conclusion of the first instance court that the
Order violated the right to property guaranteed by the Constitution
and the international law is incorrect because the companies in
question have the right to open duty free shops in other places, as
provided by Article 51 of the Customs Code. The activity of the
companies is not totally stopped and nothing is taken away from them.
...
The first instance court's reference to Article 40 of
the Law on Foreign Investment which says that the activity of a
company with foreign investment can only be terminated by a
Government Decision or a court judgment is wrong because the Order
did not totally terminate the applicants' activity but only the sale
of goods in the Duty Free regime. They can do other activities which
are provided in their documents of incorporation.”
- The
Supreme Court of Justice did not express any view on the applicant's
argument or the ruling of the Court of Appeal concerning the
applicability of the second paragraph of section 43 (2) of the Law on
Foreign Investment to the case. Its judgment was final.
II. RELEVANT DOMESTIC LAW AND PRACTICE
- The
relevant extracts from the Constitution of the Republic of Moldova
read as follows:
“Article 46. The right to private property and its
protection
(1) The right to possess private property ... [is]
guaranteed.
(2) No one may have his property expropriated except for
reasons dictated by public necessity, as established by law, and
subject to the payment of just and appropriate compensation made in
advance.
(3) No assets legally acquired may be confiscated. The
effective presumption is that of legal acquirement.
...”
- Presidential Decree No. 195 of 10 June 1994, in so far
as relevant, reads:
“...
Section 3. Imported goods which are to be sold at “duty
free” shops... shall be exempted from customs tax;
...
“Duty free” shops
may be operated at the road, naval and air border crossing
points....”
- The Law on Foreign Investments of 1 April 1992, in so
far as relevant, reads:
“Section 1. The applicable law
...
3.... Laws which contradict the present law in the part
concerning foreign investments shall not be applicable.
...
Section 35. Customs incentives for goods brought into
the country
1. The goods referred to in section 3 of the
present law [cars, equipment, office equipment,
row material...], which are brought into the country as
a contribution to the statutory capital shall be exempted from
customs tax.
...
Section 36. Customs incentives for import and export
...
2. A company owned by foreign investors shall
be exempt from customs tax for merchandise (raw materials...),
imported for the purpose of producing goods to be exported.
Section 39. Guarantees concerning nationalisation or
expropriation of foreign capital investments
1. Foreign investments in the Republic of
Moldova are granted complete security and protection.
2. Foreign investments cannot be
expropriated, nationalised or subjected to any other similar measures
in any way other than according to the law, on the basis of a law
serving the national interest and against the payment of appropriate
compensation.
3. Compensation shall correspond to the value
of investment assessed immediately before the moment of
expropriation, nationalisation or other similar measure. It must be
paid not later than three months from the moment the above measures
are taken, with an appropriate bank interest rate calculated before
the date of payment. The compensation has to be paid in the currency
in which the investment was made and it may be transferred abroad
without any restrictions.
4. The payment of compensation is ensured by
the State body entitled to carry out the expropriation,
nationalisation or any other similar measures. The State body must
determine the value of investment and pay the compensation not later
than the day of the expropriation, nationalisation or other similar
measure. If the State body does not have sufficient funds, the
compensation shall be paid from the State budget.
5. The affected investor is entitled to
request verification of the legality of the expropriation,
nationalisation or other similar measure and of the amount of the
compensation in the manner provided for by law.”
Section 40. Guarantees concerning forcible suspension
and cessation of activity
1. The activity of an enterprise with foreign
investors can be forcibly suspended only in accordance with a
decision of the Government of the Republic of Moldova or a competent
court, when the enterprise has seriously violated the terms of the
legislation of the Republic of Moldova or the provisions of its
articles of incorporation...
2. If the activity of an enterprise with
foreign investors is suspended on the initiative of a body of State
control, and no violations of legislation or of the constitutive
documents are found, the above body shall compensate the enterprise
for any damage including lost profit. If the State body does not have
sufficient money, the payment is made from the State budget.
3. The assets of a foreign investor whose
enterprise is liquidated or who withdraws from the enterprise may be
taken abroad by him without any licence.”
...
“Section 43. Guarantees concerning changes of
legislation
1. In the event of the adoption of new
legislative acts changing the conditions of activity of an enterprise
with foreign capital created before the adoption of such acts, that
enterprise shall have the right to have applied to it the legislation
of the Republic of Moldova operating on the day of its creation for a
period of ten years calculated from the day of the entry into force
of the new legislative act.
2. The provisions of paragraph 1 do not
extend to legislation related to tax, customs, finance, monetary,
credit, currency or anti-trust measures, or to legislation regulating
State security, protection of the environment, social order, morals
or the health of the population.
Foreign investors and enterprises with foreign investors
which enjoyed customs, tax and other incentives in accordance with
the former legislation of the Republic of Moldova shall enjoy those
incentives after the new legislation comes into effect....”
- The Customs Code of the Republic of Moldova as amended
on 24 April 2002 reads:
“Section 51. The duty free outlet – a
customs regime (regim vamal) which consists of the sale of
goods under customs supervision in specially designed places situated
in international airports and on board aircraft.
Section 56. A duty free outlet may be closed down if the
licence expires or if it is annulled or withdrawn in accordance with
the law.”
- The relevant provisions of Law No. 780 of 27 December
2001 read as follows:
“Section 46 § 1. A law may have effect only
during the period of its validity and may not have retroactive or
prospective effect.”
- The
treaty between the United States of America and the Republic of
Moldova concerning the encouragement and reciprocal protection of
investment, signed at Washington on 21 April 1993, in so far as
relevant, reads as follows:
“...
Article II. 3. (a) Investment shall at all
times be accorded fair and equitable treatment, shall enjoy full
protection and security and shall in no case be accorded treatment
less than that required by international law.
(b) Neither Party shall in any way impair by
arbitrary or discriminatory measures the management, operation,
maintenance, use, enjoyment, acquisition, expansion, or disposal of
investments. For purposes of dispute resolution under Articles VI and
VII, a measure may be arbitrary or discriminatory notwithstanding the
fact that a Party has had or has exercised the opportunity to review
such measure in the courts or administrative tribunals of a Party.
(c) Each Party shall observe any obligation
it may have entered into with regard to investments.
...
Article III. 1. Investments shall not be expropriated or
nationalized either directly or indirectly through measures
tantamount to expropriation or nationalization ("expropriation")
except: for public purpose; in a nondiscriminatory manner; upon
payment of prompt, adequate and effective compensation; and in
accordance with due process of law and the general principles of
treatment provided for in Article II(3). Compensation shall be
equivalent to the fair market value of the expropriated investment
immediately before the expropriatory action was taken or became
known, whichever is earlier; be calculated in a freely usable
currency on the basis of the prevailing market rate of exchange at
that time; be paid without delay; include interest at a commercially
reasonable rate from the date of expropriation; be fully realizable;
and be freely transferable.”
- On
31 July 2001 the Commission on the Economy, Industry, Budget and
Finance of the Parliament of the Republic of Moldova replied to an
enquiry made by the applicant concerning the interpretation of
Section 43 of the Law on Foreign Investment. In a letter signed by
the Chairman of the Commission, Mr. N. B., it stated the following:
“Subsection 1 of Section 43 provides that in the
event of new legislation, changing the conditions of activity of a
company with foreign investors which was created before the adoption
of such new legislation, that company has the right to rely on the
legislation in force on the day of its creation for a period of ten
years calculated from the day of the entry into force of the new
legislation.
The above is a general rule, which refers to any
legislation changing the general conditions of activity of a company
owned by foreign investors.
Paragraph 1 of Subsection 2 states the type of
legislation not covered by the rule in Subsection 1, and which is
applicable from the very moment of its entering into force.
Paragraph 2 of Subsection 2 states the exceptions to
Paragraph 1 of Subsection 2. These exceptions refer only to
privileges (facilităţi), incentives (înlesniri),
exemption of payments (scutiri de plăţi),
etc., which were provided for in law when the company was set up.
Accordingly, Paragraph 2 of Subsection 2 does not
contradict the provisions of Paragraph 1 of Subsection 2, but makes
clear that companies with foreign investors, which enjoyed customs,
tax or other forms of privileges in accordance with the legislation
of the Republic of Moldova formerly in force, have the right to enjoy
those privileges for ten years after the entry into force of new
legislation.”
- In
their observations of October 2005 the Government argued that the
above letter had not been signed by the Chairman of the Commission on
the Economy, Industry, Budget and Finance of the Parliament, but by
an ordinary member of that Commission and that in any event,
according to Moldovan legislation, it could not be considered an
official interpretation of section 43 of the Law on Foreign
Investment but merely an explanation. They requested the Court not to
admit the letter as evidence.
- The applicant company submitted for the Court's
attention a judgment of the Court of Appeal of the Republic of
Moldova in the case of Bimer S.A. versus the Ungheni Customs
Office in which a similar matter had been decided. In that case
the applicant had successfully challenged the closure of another duty
free shop operated by it at the Ungheni customs point on the same
grounds as in the present case. By its final judgment of 9 July
2002 the Court of Appeal found inter alia that the applicant
company had been entitled to rely on the second paragraph of section
43 (2) of the Law on Foreign Investments and that the amended section
51 of the Customs Code could not have any bearing on the applicant
company since according to section 46 of Law No. 780 it could not
have retroactive effect on the duty free shops opened prior to its
enactment.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO. 1 TO THE
CONVENTION
- The
applicant company argued that the closure of its duty free shop and
bar had violated its right guaranteed under Article 1 of Protocol No.
1 to the Convention, which provides:
“Every natural or legal person is entitled to the
peaceful enjoyment of his possessions. No one shall be deprived of
his possessions except in the public interest and subject to the
conditions provided for by law and by the general principles of
international law.
The preceding provisions shall not, however, in any way
impair the right of a State to enforce such laws as it deems
necessary to control the use of property in accordance with the
general interest or to secure the payment of taxes or other
contributions or penalties.”
A. The submissions of the parties
- The Government argued that the duty free shop and bar
was not the only type of activity provided for by the applicant
company's articles of association. Accordingly, it would be incorrect
to state that by closing down the duty free shop and bar, the entire
activity of the applicant company was stopped.
- The
applicant company was entitled to open a duty free shop and bar at
the airport or on board aeroplanes. At the same time it was not
deprived of its goods, since it could use the premises of the former
duty free shop for other purposes and it could sell the merchandise
under an ordinary, non-duty-free regime. Accordingly, the measure
applied to the applicant could only be characterised as a control of
the use of property.
- The
interference with the applicant's right to property had been carried
out in accordance with the new section 51 of the Customs Code and
accordingly it was prescribed by law and it pursued the public
interest of preventing or reducing the number of offences of a
financial or tax nature.
- According
to the Government, the duty free regime enjoyed by the applicant
company under the terms of its licences did not constitute “customs,
tax and other incentives” for the purposes of the second
paragraph of section 43 (2) of the Law on Foreign Investments and
therefore the applicant could not rely on that provision and hope to
have the old legislation applied to it for a further ten years.
- The
Government argued that the “customs, tax and other incentives”
mentioned in the second paragraph of section 43 (2) referred only to
the incentives stipulated in sections 35 and 36 of the Law on Foreign
Investments.
- They
also submitted that since both the Law on Foreign Investments and the
Customs Code were organic laws, the newer law, the Customs Code, was
applicable.
- As a final argument in support of their position that
the duty free regime did not constitute “customs, tax and other
incentives” for the purposes of second paragraph of section 43
(2), the Government submitted a letter from the Customs Department,
which, they argued, was the only body entitled to give explanations
concerning customs legislation. In that letter, the Customs
Department reiterated its position from the domestic proceedings that
the duty free regime did not constitute “customs, tax and other
incentives” for the purposes of the second paragraph of section
43 (2) of the Law on Foreign Investments.
- The
applicant company argued that the sale of goods in its duty free shop
and bar had been its only activity. It submitted that the Law on
Foreign Investments was clear in stating that foreign investments
were guaranteed complete security and protection. Such was the
wording of section 39 of the Law. In the applicant's view this law
had been enacted in order to encourage foreign investors to invest
their money in the Moldovan economy, in conditions of security while
not being afraid of any change of legislation or of changes of the
political course of Moldova. In such circumstances, any ambiguous
part of the text concerning the guarantees afforded to it by this law
should have been interpreted in its favour. If a State interpreted
contradictions within its legislation for its own benefit, that
constituted a breach of the principle of lawfulness, and accordingly
a breach of the right to respect for one's possessions.
- The
applicant company argued that the effects of the legislation applied
to it were not foreseeable and that accordingly the interference with
its right to property was not in accordance with the law.
- In
particular, the applicant referred to the guarantees provided for in
section 43 of the Law on Foreign Investments.
- Moreover,
the principle of non-retroactivity of laws stipulated in section 46
of Law No. 780 had been breached by the authorities when applying the
new section 51 of the Customs Code to duty free shops opened in 1998.
- The
closure of the duty free shops had also been illegal because it was
in breach of section 56 of the Customs Code which enumerated in an
exhaustive manner the grounds on which a duty free shop could be
closed down. That provision did not say anything about closing down a
duty free shop on the ground of a change of legislation.
- The
applicant submitted that in a similar case decided by the Moldovan
courts by a final judgment of 9 July 2002, the legislation
referred to above had been interpreted and applied differently (see
paragraph 30 above). That judgment, however, had not been complied
with by the Moldovan authorities.
- Since
60% of the shares of the company were held by a United States
resident, the treatment applied to the company was contrary to the
provisions of the Treaty between the United States of America and the
Republic of Moldova concerning the encouragement and reciprocal
protection of investment.
- The
applicant company also argued that the interference had constituted
an excessive burden for it and that a fair balance had not been
struck between the public interest and its individual rights.
- The
theoretical possibility for the applicant to relocate its duty free
shop and bar in accordance with the new section 51 of the Customs
Code was excluded because that would have required additional large
investments, which was not consistent with the initial investment
plan, and moreover the applicant would not have had any guarantees
that after such relocation the law would not change again and that it
would not lose its business again.
- The
applicant also argued that the interference amounted to a deprivation
and that no compensation had been paid by the State.
B. The Court's assessment
- It
is undisputed between the parties that the applicant company's
licence to operate the duty free shop and bar constituted a
possession for the purposes of Article 1 of Protocol No. 1 to the
Convention. The Court recalls that, according to its case-law, the
termination of a valid licence to run a business amounts to an
interference with the right to the peaceful enjoyment of possessions
guaranteed by Article 1 of the Protocol (Tre Traktörer
Aktiebolag v. Sweden judgment of 7 July 1989, Series A no. 159, §
55 and Rosenzweig and Bonded Warehouses Ltd. v. Poland, no.
51728/99,§ 48, 28 July 2005).
- In
its judgment reversing the decision of the Court of Appeal in the
present case, the Supreme Court of Moldova held that the Order of the
Customs Department did not give rise to an interference with the
activity of the applicant company in that the company retained the
right to open duty free shops in other locations and to carry on
other activities provided in its documents of incorporation: the
Order did not terminate the applicant's activities but only its sale
of goods in a duty-free regime. Accordingly, the Supreme Court held
that the Court of Appeal had erred in concluding that the Order had
violated the applicant's right to property guaranteed by the
Constitution and by international law.
- Insofar
as the judgment of the Supreme Court is to be interpreted as meaning
that, because of its limited impact, the Order did not interfere with
the possessions of the applicant company for the purposes of Article
1 of Protocol No. 1, the Court is unable to accept this view. While
it is true that the Order did not prevent the applicant company from
carrying on other activities authorised under its articles of
association, as for instance the conducting of an ordinary retail
business, and while the company could in principle have applied for a
new licence to open a duty-free shop at an airport location, it is
beyond dispute that the Order had the immediate and intended effect
of preventing the applicant from continuing to operate its duty-free
business at the Leuşeni Customs Office and of terminating the
applicant's existing licence to carry on business at that location.
In these circumstances, the Court finds that there was a clear
interference with the applicant's right to the peaceful enjoyment of
its possessions for the purposes of Article 1 of Protocol No. 1.
Consistently with the Court's case-law referred to in paragraph 49
above, such interference constitutes a measure of control of use of
property which falls to be examined under the second paragraph of
that Article.
- For
a measure constituting control of use to be justified, it must be
lawful (see, Katsaros v. Greece, no.
51473/99, § 43, 6 June 2002) and “for the
general interest” or for the “securing of the payment of
taxes or other contributions or penalties”. The measure must
also be proportionate to the aim pursued; however, it is only
necessary to examine the proportionality of an interference that is
lawful (see Katsaros, cited above, §
43).
- In
so far as the lawfulness of the interference is concerned, the Court
notes that the main dispute between the parties both before the
domestic courts and before the Court is whether the duty free regime
enjoyed by the applicant company in accordance with the Decree was
“customs, tax and other incentives” for the purpose of
the second paragraph of subsection 2 of section 43 and whether it
could therefore be entitled to enjoy the former more favourable
legislation for at least ten years as provided for in subsection 1 of
section 43.
- The
Government argued that the duty-free regime enjoyed by the applicant
company under the terms of its licences did not constitute “customs,
tax or other incentives” within the meaning of section 43 of
the Law on Foreign Investments, such “incentives”
referring only to those stipulated in section 35 and 36 of that Law.
As noted above (paragraph 38), the Government submitted a letter from
the Customs Department supporting this interpretation of the section.
It was further contended by the Government that the Law on Foreign
Investments and the Customs Code were organic laws and that the Code,
being the more recent in time, was applicable in the case.
- The
Court observes that similar arguments were advanced by the Customs
Department before the Court of Appeal in the present case and
were rejected by that court, which concluded that section 43 of the
Law was applicable to the applicant's business and that the effect of
the 2002 legislation was to change the conditions of activity of the
applicant company, which had been created with foreign investment
before the enactment of such legislation. The Court of Appeal further
held that, pursuant to the second paragraph of section 43 of the Law,
enterprises such as the applicant company with foreign capital, which
had enjoyed customs, tax and other incentives in accordance with the
legislation of the Republic of Moldova formerly in force, had the
right to enjoy those incentives for ten years after the new
legislation came into effect. Accordingly, the Order which resulted
in the immediate termination of those customs incentives was illegal
as it was contrary to the legislation in force.
- This
view was confirmed by the Court of Appeal in its judgment of 9 July
2002 (see paragraph 30 above), in which it was held that the
applicant company had been entitled to rely on the second paragraph
of section 43 (2) of the Law and that the amended section 51 of the
Customs Code could not have any bearing on the applicant company
since, according to section 56 of Law No. 780, it could not have
retroactive effect in respect of duty-free shops opened prior to its
enactment.
- The
former judgment of the Court of Appeal, unlike the latter, never
became final, since it was quashed on appeal by the Supreme Court.
However, as noted above, the judgment was set aside on the ground
that there had been no relevant interference with the applicant's
activities or with its right to property in international law. The
Supreme Court did not dispute the Court of Appeal's interpretation of
section 43 of the Law or its view that the second paragraph of that
section would govern in the case of any interference with the right
of a company with foreign capital to carry on a duty-free business.
The Court has found above that there was such interference in the
present case.
- The
Court reiterates that it is in the first place for the domestic
authorities, notably the courts, to interpret and apply domestic law
(Jahn and Others v. Germany [GC] nos. 46720/99, 72203/01 and
72552/01, § 86, ECHR 2005- ). It finds no grounds in the present
case to call into question the view of the Court of Appeal, expressed
on two occasions, that section 43 was applicable to the case of the
present applicant and that the Order which required the immediate
closure of the applicant's duty-free business at the Leuşeni
Customs Office was not lawful under domestic law.
- Accordingly,
the interference with the applicant's property in the present case
was not lawful and was therefore incompatible with the applicant's
right to the peaceful enjoyment of its possessions within the meaning
of Article 1 of Protocol No. 1. This conclusion makes it unnecessary
to examine whether the other requirements of the second paragraph of
Article 1 have been complied with (see Iatridis v. Greece
[GC], no. 31107/96, § 62, ECHR 1999-II).
- There
has therefore been a violation of Article 1 of Protocol No. 1.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
- Article 41 of the Convention provides:
“If the Court finds that there has been a
violation of the Convention or the Protocols thereto, and if the
internal law of the High Contracting Party concerned allows only
partial reparation to be made, the Court shall, if necessary, afford
just satisfaction to the injured party.”
A. Damage
- The
applicant company claimed 798,956.51 United States dollars (“USD”)
for the pecuniary damage suffered as a result of the breach of its
right guaranteed by Article 1 of Protocol No.1 to the Convention. The
amount included the lost profit calculated for a period of ten years
in the amount of USD 256,134.80, the cost of the immovable
property located in the Leuşeni customs zone which the applicant
company was unable to use after the closure of the duty free shop and
bar in the amount of USD 234,329.18, the related bank interest
of USD 176,444.63 and compensation for inflation estimated at
USD 132,047.90.
- In
a letter dated 14 March 2007, referring to the Government's
observations in reply to its observations, the applicant company
requested the Court to reserve the question of the application of
Article 41 for a separate decision.
- The
Government disagreed with the applicant and argued that the methods
of calculation employed by it in respect of each of the above amounts
were wrong. They submitted a detailed explanation in support of this
view. They informed the Court that in order to determine the amount
of the alleged damage suffered by the applicant company they had
ordered an economic and accounting evaluation to be carried out by
the National Centre for Expert Analysis under the control of the
Ministry of Justice (“National Centre”). In that
connection two experts from the National Centre had been requested to
determine the cost of the immovable property located inside the
Leuşeni customs zone, the applicant company's lost profit
calculated for a period of ten years, the related bank interest and
the loss arising from inflation.
- In
a report dated 14 November 2006 the experts had determined that the
value of the immovable property located on the premises of the
Leuşeni Customs Office was USD 197,089.68; the lost profit
for a period of ten years amounted to USD 256,134.80; the
related bank interest amounted to USD 92,208.53; and that the
loss arising from inflation amounted to USD 68,971.98.
- The
Government argued on the basis of the report of the National Centre
that the damage suffered by the applicant company amounted to
USD 614,404.99 and asked the Court to dismiss the applicant
company's claims as ill-founded.
- The
Court notes the applicant's request to reserve the question of the
application of Article 41; however, in view of the materials in its
possession, it considers that the question is ready for decision. In
particular while the parties' calculations differ, the discrepancy
between them is not so fundamental as to require an adjournment of
the question.
- The
Court recalls that a judgment in which it finds a breach imposes on
the respondent State a legal obligation to put an end to the breach
and make reparation for its consequences in such a way as to restore
as far as possible the situation existing before the breach (see
Brumărescu v. Romania (just satisfaction) [GC],
no. 28342/95, § 19, ECHR 2001 I).
- In
the present case the Court has found a violation of Article 1 of
Protocol No. 1 to the Convention on the ground that the closure of
the applicant company's duty free shop and bar were not lawful within
the meaning of that provision. In view of the materials in its
possession and of the submissions of the parties it considers that
the applicant company suffered a pecuniary loss which would have been
avoided had the duty free shop and bar not been closed by the
respondent State.
- The
parties agreed in principle that the calculation of the damage should
be determined on the basis of such elements as the cost of the
immovable property located inside the Leuşeni customs zone, the
applicant company's lost profit calculated for a period of ten years,
the related bank interest and the loss arising from inflation. Only
the methods of calculation and the resulting amounts linked to each
of the above elements remained disputed between them.
- Having
analysed the submissions and the methods of calculation employed by
the parties, bearing in mind the specific circumstances of the case,
the materials in the Court's possession and deciding on an equitable
basis the Court decides to award the applicant company EUR 520,000
for pecuniary damage.
- Since
the applicant did not make any claims for non-pecuniary damage or for
costs and expenses, the Court does not consider it necessary to make
any awards in respect of these heads.
B. Default interest
- The
Court considers it appropriate that the default interest should be
based on the marginal lending rate of the European Central Bank, to
which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
- Holds that there has been a violation of
Article 1 of Protocol No. 1 to the Convention;
- Holds
(a) that
the respondent State is to pay the applicant, within three months
from the date on which the judgment becomes final in accordance with
Article 44 § 2 of the Convention, EUR 520,000
(five hundred and twenty thousand euros) in respect of pecuniary
damage, plus any tax that may be chargeable, to be converted into the
national currency of the respondent State at the rate applicable at
the date of settlement;
(b) that
from the expiry of the above-mentioned three months until settlement
simple interest shall be payable on the above amount at a rate equal
to the marginal lending rate of the European Central Bank during the
default period plus three percentage points;
- Dismisses the remainder of the applicant's claim
for just satisfaction.
Done in English, and notified in writing on 10 July 2007, pursuant to
Rule 77 §§ 2 and 3 of the Rules of Court.
T.L. Early Nicolas Bratza
Registrar President
In accordance with Article 45 § 2 of the Convention and Rule 74
§ 2 of the Rules of Court, the following separate opinions are
annexed to this judgment:
- concurring
opinion of Sir Nicolas Bratza;
- concurring
opinion of Mr Pavlovschi.
N.B.
T.L.E.
CONCURRING OPINION OF SIR NICOLAS BRATZA
- I
am in full agreement with the other members of the Chamber that the
applicant's rights under Article 1 of Protocol No. 1 to the
Convention were violated in the present case. However, in arriving at
this conclusion, I would have preferred a reasoning different from
that in the judgment.
- As
noted in the judgment (§ 58), it is not a dispute between the
parties that the applicant company's licences to operate the
duty-free shop and bar constitutes a possession for the purposes of
Article 1 of the Protocol. As is further noted in the judgment (§
60), the Order of the Customs Department of 18 May 2002 had the
immediate and intended effect of preventing the applicant from
continuing to operate its duty-free business at the Leuşeni
Customs Office and of terminating the applicant's existing licences
to carry on business at that location. Even if, as the Supreme Court
of Moldova held, the Order did not give rise to an interference with
the “activity” of the applicant company for the purposes
of section 40 of the Law of Foreign Investments, or with the rights
guaranteed by the Constitution of Moldova, on the basis that the
applicant retained the right to carry on other business activities,
it clearly amounted to an interference with the applicant's right to
the peaceful enjoyment of its possession for the purposes of Article
1 of the Protocol (see, for example, Tre Traktörer Aktiebolag
v. Sweden, judgment of 7 July 1989, Series A no. 159, § 55).
- Although
the applicant company could not carry on a duty-free business, it
maintained some economic rights represented by its premises at the
border and its property assets, including unsold stock. In these
circumstances, as in the Tre Traktörer case, the
withdrawal or suspension of the licences is to be seen not as a
deprivation of possessions for the purposes of the second sentence of
Article 1 of Protocol No. 1 but as a measure of control of use of
property which falls to be examined under the second paragraph of
that Article.
- In
order to comply with the requirements of the second paragraph, it
must be shown that the measure constituting the control of use was
lawful, that it was “in accordance with the general interest”,
and that there existed a reasonable relationship of proportionality
between the means employed and the aim sought to be realised. The
Chamber's conclusion in the judgment that the applicant's rights
under Article 1 were violated is based on the fact that the Order was
not “lawful” in that, as found by the Court of Appeal of
Moldova, it did not comply with the requirements of section 43 of the
Law on Foreign Investments, which entitled the applicant company to
enjoy customs incentives for ten years after the coming into effect
of the amendment to the Customs Code restricting duty-free sales
outlets to international airports and on board aircraft flying
international routes. I would have preferred that the question of the
lawfulness of the measure had been left open and that the Court's
focus had been rather on its proportionality to any legitimate aim
served by it.
- According
to the Court's constant case-law, the second paragraph of Article 1
is to be construed in the light of the general principles enunciated
in the first sentence, and requires that a fair balance is struck
between the demands of the general interests of the community which
is served by the measure in question and the fundamental rights of
the individual which are affected by the measure. In determining
whether a fair balance exists, the Court recognises that the State
enjoys a wide margin of appreciation with regard both to choosing the
means of enforcement and to ascertaining whether the consequences of
enforcement are justified in the general interest for the purpose of
achieving the object of the law in question (see, for example, AGOSI
v. the United Kingdom, judgment of 24 October 1986, Series A
no. 108, § 52). The requisite balance will not be found if the
individual concerned has had to bear “an individual and
excessive burden”. The existence or lack of compensation terms
under the relevant legislation may be a material factor in the
assessment whether the contested measure respects the requisite fair
balance and, notably, whether it imposes a disproportionate burden on
an applicant (see, for example, Holy Monasteries (The) v. Greece
judgment of 9 December 1994, Series A no. 301-A, § 71
and, in the specific context of the second paragraph of Article 1,
Immobiliare Saffi v. Italy [GC], no. 22774/93, § 57, ECHR
1999V).
- The
Government argued that, by subjecting the sale of duty-free goods to
a system of licences, the Moldovan legislation took measures to
implement the national policy in this field. This was in line with
Moldovan economic policy generally, the objective of which was to
control the use of merchandise in the general interest. It is further
argued that the amendment to the Customs Code in April 2002 was
designed in the general interest to contribute to the reduction and
elimination of violations of the law of a financial and fiscal
character.
- It
is not disputed by the applicant company that the control of use of
duty-free goods through a licensing system served the general
interest of the community and this I can readily accept. I can also
accept that legislative provisions which are designed to prevent
fraud or fiscal offences on the part of those carrying on duty-free
businesses serve a legitimate aim in the general interest. The
central question, however, remains whether the
application of those measures in the particular case of the applicant
company struck a fair balance between the competing public and
private interests.
- In
determining this question several features of the case seem to me to
be of importance:
(i) There was and is no suggestion that the applicant
company had in any way contravened the law or that it was suspected
of fiscal or other offences in carrying on its duty-free business. As
pointed out in the judgment of the Court of Appeal, section 40 of the
Law on Foreign Investments permitted the suspension of the activities
of an enterprise with foreign investors only in accordance with a
decision of the Government of Moldova or a competent court but the
Order in question contained no reference to any such breaches on the
part of the applicant and was not based on any such decision or
judgment. In this respect, the position of the present applicant is
in sharp contrast to that of the applicant in the Tre Traktörer
case, where the revocation of the applicant's alcohol licence was
based on discrepancies in the book-keeping of the licence-holder
concerning the sale of alcoholic beverages, which were found to be
very significant in relation to the total turnover of the company and
on which the Court placed considerable emphasis in concluding that a
fair balance had not been upset.
(ii) The financial repercussions of the termination of the
applicant's business were very serious. The applicant company had
obtained the licences to operate the duty-free shop and bar in 1998;
it had bought the necessary equipment, built the shop premises and
had been carrying on the business for some 2-3 years before the Order
was issued in May 2002. The scale of the loss suffered by the
applicant company as a result of the immediate closure of the
business may be judged from the Government's own estimate of the
damage sustained by the applicant, which totalled in excess of
USD 614,000, including loss of profits over a ten year period of
some USD 256,000.
(iii) In further contrast to the situation in the Tre
Traktörer case, there is nothing to suggest that the measure
in question could have been foreseen or that provision could have
been made by the applicant company to mitigate its loss. As noted in
the Court's judgment, the licences contained no provisions limiting
their duration and there was nothing in the relevant legislation at
the time of issue of the licences to suggest that they could be
terminated, except on grounds provided for in section 56 of the
Customs Code.
(iv) Despite the serious impact which the new legislation
would be likely to have on existing duty-free businesses, no
exception was made in the legislation for such businesses and no
transitional period was afforded during which duty-free business
could be wound down and alternative sources of revenue found. Nor was
any compensation whatever provided to mitigate the effect of the
substantial losses which would inevitably be suffered by companies or
individuals affected by the Order.
- These
factors, taken together, lead me to conclude that, notwithstanding
the margin of appreciation afforded to the State, a fair balance was
not preserved in the present case and that the applicant company was
required to bear an individual and excessive burden, in violation of
Article 1 of the Protocol No. 1.
- As
to the question of just satisfaction under Article 41 of the
Convention, while it is true that the calculation of the applicant's
pecuniary loss might in principle vary depending on whether the
violation of Article 1 was based on the unlawfulness of the
interference or on its lack of proportionality, I note that the
Government have not suggested that any different approach should be
taken in the present case. Accordingly, I see no reason to adopt any
different approach and have voted with the other members of the
Chamber in awarding the sum set out in paragraph 80 of the judgment.
CONCURRING OPINION OF JUDGE PAVLOVSCHI
In my
opinion, the present application is inadmissible on account of the
applicant company's failure to exhaust all available domestic
remedies, as required by the Convention, in its attempts to obtain
full compensation for the damage sustained.
The
problem of compensation for damage is not only closely linked to the
problem of exhaustion or non-exhaustion of domestic remedies. In my
opinion, it is also closely linked to the problem of proportionality,
which forms part of the examination of the merits of the case.
Despite
my firm conviction that the present application is inadmissible, I
have decided to go along with my fellow judges in finding a violation
in the case of Bimer S.A. v. Moldova.
Let
me explain the line of reasoning which led me to this decision and
which - to some extent - is similar to that expressed in my partly
concurring opinion in the case of Cooperativa Agricola
Slobozia-Hanesei v. Moldova (application no. 39745/02), namely
that international judges in their decision-making activity are to a
certain extent bound by the positions expressed by the parties and
the evidence submitted by them.
Returning
to the present case, I consider that it may be treated as another in
a series of economic cases which have already been examined or are
still pending before this Court.
Economic
cases always pose extremely complex questions, the answers to which
require deep professional knowledge. Their examination is even more
difficult when such cases involve taxation issues taken together with
various legislative changes. Dealing with taxation matters creates
problems even for persons who are specialised in this field, not to
mention international judges. That is why the parties' submissions
are crucial and decisive in the correct adjudication of these cases.
Where a party fails to comply with its procedural obligations, the
Court's task is rendered even more difficult.
The
case of Bimer S.A. presents a clear illustration of the above
statement. In my opinion this case has two basic aspects.
The
first of these aspects is an administrative dispute between
Bimer S.A. and the Customs Department. This part of the case
commenced on 11 June 2002, when Bimer S.A. brought
administrative proceedings before the Administrative Court seeking
annulment of the Customs
Department's order no. 127-0 of 18 May 2002, an order which had the
immediate and intended effect of preventing the applicant from
continuing to operate its duty-free business at the Leuşeni
Customs Office and of terminating the applicant's existing licence to
conduct business at that location. Those proceedings were terminated
by the final decision of the Supreme Court of Justice of 11 September
2002, which dismissed the applicant's action.
Thus,
in respect of its request for annulment of the Customs Department's
order, the applicant did indeed exhaust all domestic remedies.
The
second aspect of the case is whether the applicant exhausted domestic
remedies with regard to its claim for compensation for the damage
allegedly caused by the closure of its duty-free shop and bar. Here I
really do have some very serious doubts.
No
one may question the sovereign power of member States' national
Parliaments to enact any laws they see fit in the field of taxation,
in order to reflect national realities, international obligations and
the economic situation existing in those states. In enacting such
measures, however, member States must take into consideration
different competing interests.
According
to the Court's well-established case-law, an interference, including
one resulting from measures to secure payment of taxes, must strike a
“fair balance” between the demands of the general
interests of the community and the requirements of the protection of
the individual's fundamental rights.
Furthermore,
in determining whether this requirement has been met, it is
recognised that a Contracting State, not least when framing and
implementing policies in the area of taxation, enjoys a wide margin
of appreciation and the Court will respect the legislature's
assessment in such matters unless it is devoid of reasonable
foundation (see National & Provincial Building Society, Leeds
Permanent Building Society and Yorkshire Building Society v. the
United Kingdom, judgment of 23 October 1997, Reports of Judgments
and Decisions 1997-VII, §§ 80-82).
The
Customs Department's order had the effect of terminating a valid
licence to run a business, which amounts to an interference with the
right to the peaceful enjoyment of possessions guaranteed by Article
1 of the Protocol. Such an interference represents a measure to
control the use of property as set out in the second paragraph of
that Article.
In the light of the above, it is important to study how national
legislation strikes a “fair balance” between the demands
of the general interests of the community and the requirements of the
protection of the individual's fundamental rights. Or, to put it more
bluntly, what forms of compensation for the damage caused to foreign
investors by various forms of interference with their property rights
existed, were available and, accordingly, ought to have been
exhausted by the applicant?
In
this connection the Foreign Investments Act is particularly relevant.
Here I refer to Moldovan legislation that was in force at the
material time. Section 39 of this Act directly stipulates that
foreign investments in Moldova are granted complete security and
protection. They cannot be expropriated, nationalised or subject to
any other similar measure in any way other than according to the law
... and against the “payment of appropriate compensation”.
Compensation is to correspond to the value of the investment assessed
immediately before the moment of expropriation, nationalisation or
similar measure. It must be paid not later than three months from the
moment the above measures are taken, with an appropriate bank
interest rate calculated before the date of payment (see paragraph 24
of the judgment).
According
to section 45 of the same Act, all litigation between foreign
investors and state bodies concerning the methods of application of
the Act and the provisions of other legal acts of Moldova is to be
adjudicated by the Economic Court of Moldova.
In my
opinion, the decision to withdraw the licence was clearly a measure
to control the taxation sector in the country. Such a decision
involved a deprivation of property, in so far as the licence itself
could be considered a possession, but in the circumstances of the
present case the deprivation formed a constituent element of control
of the use of property in the interests of taxation.
Given
that the applicant company incurred pecuniary damage as a result of
the State authorities' actions, it should have initiated compensation
proceedings before the Economic Court of Moldova, in accordance with
the above-mentioned provisions of sections 39 and 45 of the Foreign
Investment Act. This was not done. In practical terms, this means
that the applicant has failed to exhaust all available domestic
remedies.
At the stage of communication the Government were asked a direct
question: “Did the applicant exhaust all the domestic remedies
available to it under domestic law?”
Despite the fact that – in the particular circumstances of the
present case – the answer to this question was self-evident and
did not present any particular difficulty, the Government's
representatives failed to respond or preferred not to deal with this
question in their observations.
Where
a case has been communicated to the respondent Government, it is the
normal practice of this Court not to declare the application
inadmissible for failure to exhaust domestic remedies unless this
matter is raised by the Government in their observations (see Rehbock
v. Slovenia, no. 29462/95, (dec), 20 May 1998).
This
failure by the Government representatives to answer a direct question
put by the Court resulted in the following unanimous finding,
reflected in the admissibility decision of 23 May 2006: “...The
Court notes that the respondent Government have not pleaded that the
applicant has failed to make use of domestic remedies, and it need
not therefore examine this matter...” (see the admissibility
decision in the case of Bimer S.A. v. Moldova of 23 May
2006, application no. 15084/03).
The
Court decided to declare the present application admissible.
Thus,
it is my opinion that the Government's failure to raise the question
of non-exhaustion of domestic remedies from the very outset
pre-determined the fate of the present case and made its outcome
quite foreseeable.
Such
shortcomings create a false impression as to the non-existence in the
Republic of Moldova of any remedies for the protection of foreign
investment or any possibility for foreign investors to obtain
compensation for damage caused by the state authorities, something
that, in my view, is completely wrong.
The
damages awarded by the Court in the present case are quite
impressive, but they are based on the applicant's calculations as
well as those submitted by the Government. The latter calculations
were made by the National Centre for Expert Analysis and, in general
terms, are in line with the calculations submitted by the applicant.
For instance, if the applicant claimed USD 798,956.51 (see paragraph
71), then the Government, in turn, stated that the damage suffered by
Bimer S.A. amounted to USD 614,404.99 (see paragraph 75). Awarding
EUR 520,000 in such a situation can be considered as a perfectly
equitable sum, because it presents a fair balance between the sum
requested by the applicant and the figure submitted by the
Government.
In my
opinion, in such circumstances the Court simply had no option but to
accept a “fair balance” approach.
